All imaging centers and radiologists are feeling reimbursement pressure from recent cuts. This list identifies 7 common mistakes that prevent imaging center sellers from getting the best price possible.
1) Not preparing a financial projection (pro forma) puts the buyer in charge of estimating (of underestimating) how the business will perform in the future. The seller knows more about their own business than anyone else. Successful sellers set the initial expectations for the business, rather than trying to argue why someone else’s projection is wrong.
2) Co-mingling practice expenses with imaging centers expenses can lead to last minute purchase price adjustments. Before handing over your financial information to a buyer, take the time to carve out the costs for reception, billing, rent, and liability insurance.
3) Handing over a profit-loss statement with global billings, including technical and professional collections, puts the buyer in control of either (a) estimating (or under-estimating) the technical component of the global billings or (b) setting the initial estimate for what the professional fee payment percentage will be if global billing continues. Sellers should take control in determining the technical component of their billings or decide what their professional fee rate will be before handing over their documentation, and build that expense into their pro forma.
4) Not getting quotes on replacement equipment or planned upgrades again puts the buyer in control of estimating (or over-estimating) what major capital expenditures the business will be burdened with in coming years. When buyers solicit quotes from the highest bidder for brand new MRIs and CTs, it kills the projected cash flows for your business. Ideally, you want to hand over 3 to 5 refurbished equipment quotes for each major equipment device that will need to be replaced during the next 5 years.
5) Vague, unprepared explanations for volume decreases destroy confidence in management to maintain stable operations or achieve future growth. Successful sellers coordinate with their marketing reps to identify why referrals have decreased and to also identify recent achievements, opportunities, and loyalty among current referral sources.
6) Excluding precise maintenance contract costs for major equipment gives buyers and appraisers no option but to estimate future maintenance costs. If equipment is going to be replaced in coming years, make sure future decreases to maintenance contract costs are taken into account. Hourly maintenance overages will not be incurred on new equipment and should be pulled out.
7) When the building is owned, not having a plan for real estate creates a frantic last minute decision on how to balance out the imaging center sale price versus rent income for the next 7 to 10 years. Fair market value rent is a range. Setting rent at the low end of the range yields a higher price on the business sale.
Register for the Free Webinar on “10 Mistakes Imaging Centers Make During Sales” on June 18th. Imaging and radiology veteran Ed Field shares his insights on the new M&A market for imaging centers. Click Here to register for webinar